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HMRC internal manual

VAT Charities

HM Revenue & Customs
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Charity shops and sales of goods: Dress exchange schemes

Some charities have become involved in a scheme where a person has a garment which they are not willing to donate, but are willing to give a percentage of the sum the garment sells for to charity. The liability of this type of sale depends on how the scheme is set up.

  1. Charity accepts garment for sale. When it is sold the garment’s owner donates as much or as little of the sum received as they wish to the charity. All transactions are outside the scope of VAT.
  2. Charity accepts garment for sale on condition that a set percentage of the sale price is paid to the charity. The charity is effectively charging a commission and the amount the charity receives will be taxable at the standard rate.
  3. Charity accepts garment for sale at a set price eg £1 per week. When the garment is sold the owner is invited to make a donation to the charity, but is under no obligation to do so. The charge made by the charity for displaying the garment for sale is taxable at the standard rate. Any donation is outside the scope of VAT.

In all the above cases the ownership of the garment never passes to the charity, so the garment can never be treated as donated goods. It is normal for the charity to only hold the garment out for sale for a limited period. If, at the end of that period, the garment has not sold the owner may then wish to donate the garment to charity. The ownership then passes to the charity and the sale can be treated as one of donated goods and zero-rated.